Testimony 

Before the Committee on Energy and 

Natural Resources, U.S. Senate

United States General Accounting Office 

GAO

For Release on Delivery 

Expected at 2:30 p.m. EDT 

Tuesday, July 15, 2003 COMPACT OF FREE 

ASSOCIATION 

An Assessment of the 

Amended Compacts and 

Related Agreements 

Statement of Susan S. Westin, Managing Director 

International Affairs and Trade 

GAO-03-1007T 
The amended Compacts of Free Association between the United States and 

the FSM and the RMI to renew expiring U.S. assistance could potentially 

cost the U.S. government about $6.6 billion in new authorizations from the 

Congress. Of this amount, $3.5 billion would cover payments over a 20-year 

period (2004-2023), while $3.1 billion represents payments for U.S. military 

access to Kwajalein Atoll in the RMI for the years 2024 through 2086. While 

the level of annual grant assistance to both countries would decrease each 

year, contributions to trust funds–meant to eventually replace grant funding–

would increase annually by a comparable amount. Nevertheless, at an 

assumed annual 6 percent rate of return, earnings from the FSM trust fund 

would be unable to replace expiring grant assistance in 2024, while earnings 

from the RMI trust fund would encounter the same problem by 2040. 

The amended Compacts strengthen reporting and monitoring measures that 

could improve accountability over assistance, if diligently implemented. 

These measures include the following: assistance grants would be targeted 

to priority areas such as health and education; annual reporting and 

consultation requirements would be expanded; and funds could be withheld 

for noncompliance with grant terms and conditions. The successful 

implementation of the many new accountability provisions will require 

appropriate resources and sustained commitment from the United States, 

the FSM, and the RMI. 

Regarding defense, U.S. military access to Kwajalein Atoll in the RMI would 

be extended from 2016 through 2066, with an option to extend through 2086. 

Finally, Compact provisions addressing immigration have been 

strengthened. For example, FSM and RMI citizens entering the United States 

would need to carry a passport, and the U.S. Attorney General could, 

through regulations, specify the time and conditions of admission to the 

United States for these citizens. 

Estimated New U.S. Authorizations for the FSM and the RMI, Fiscal Years 2004-2086 

(U.S. dollars in millions) 

FSM RMI Total 

Fiscal years 2004-2023 $2,296 $1,204 $3,500

Fiscal years 2024-2086 Not applicable 3,081 3,081

Fiscal years 2004-2086, total 

possible new U.S. 

authorizations for the FSM 

and the RMI $2,296 $4,285 $6,581

Source: GAO estimate based on information in the amended Compacts. 

Note: These figures are adjusted for inflation. In 2004 U.S. dollars, the total cost would be $3.8 

billion.

In 1986, the United States entered 

into a Compact of Free Association 

with the Pacific Island nations of 

the Federated States of Micronesia, 

or FSM, and the Republic of the 

Marshall Islands, or RMI. The 

Compact provided about $2.1 

billion in U.S. funds, supplied by 

the Department of the Interior, 

over 17 years (1987-2003) to the 

FSM and the RMI. These funds 

were intended to advance 

economic development. In a past 

report, GAO found that this 

assistance did little to advance 

economic development in either 

country, and accountability over 

funding was limited. The Compact 

also established U.S. defense rights 

and obligations in the region and 

allowed for migration from both 

countries to the United States. 

The three parties recently 

renegotiated expiring economic 

assistance provisions of the 

Compact in order to provide an 

additional 20 years of assistance 

(2004-2023). In addition, the 

negotiations addressed defense and 

immigration issues. The House 

International Relations and 

Resources Committees requested 

that GAO report on Compact 

negotiations. 

This testimony discusses 

negotiated changes to the levels 

and structure of future assistance, 

including the potential cost to the 

U.S. government. Further, it 

reviews accountability, defense, 

and immigration changes brought 

about by the amended Compacts 

and related agreements. 

www.gao.gov/cgi-bin/getrpt?GAO-03-1007T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Susan S. 

Westin at (202) 512-4148 or 

WestinS@gao.gov. 

Highlights of GAO-03-1007T, a testimony 

before the Senate Committee on Energy 

and Natural Resources 

July 15, 2003

COMPACT OF FREE ASSOCIATION 

An Assessment of the Amended 

Compacts and Related Agreements 
Page 1 GAO-03-1007T Compact of Free Association 

Mr. Chairman and Members of the Committee: 

I am pleased to be here today to testify on the Compact of Free 

Association between the United States and the Pacific Island nations of 

the Federated States of Micronesia, or the FSM, and the Republic of the 

Marshall Islands, or the RMI.1 In 1986, the United States entered into this 

Compact with the two countries after almost 40 years of administering the 

islands under the United Nations Trust Territory of the Pacific Islands. The 

Compact has provided U.S. assistance to the FSM and the RMI in the form 

of direct funding as well as federal services and programs for almost 17 

years. Further, the Compact establishes U.S. defense rights and obligations 

in the region and allows for migration from both countries to the United 

States. Provisions of the Compact that address economic assistance were 

scheduled to expire in 2001; however, they can remain and have remained 

in effect while the United States and each nation renegotiated the affected 

provisions.2

Today I will discuss our review of the amended Compacts and related 

agreements that the United States signed with the FSM and the RMI in May 

and April of 2003, respectively. (According to a Department of State 

official, while the original Compact was one document that applied to both 

the FSM and the RMI, the Compact that has been amended is now a 

separate Compact with each nation.) Specifically, I will discuss changes to 

levels and structure of future assistance, including the potential cost to the 

U.S. government. Further, I will comment on changes in accountability 

and other key issues addressed in the amended Compacts and related 

agreements. 

The amended Compacts of Free Association with the FSM and the RMI to 

renew expiring assistance would require about $3.5 billion in funding over 

the next 20 years with a total possible authorization through 2086 of 

 1

The FSM had a population of about 107,000 in 2000, while the RMI had a population of 

50,840 in 1999, according to each country’s most recent census. 

2

Other Compact provisions are also due to expire in late 2003 if not renewed. These include 

(1) certain defense provisions, such as the requirement that the FSM and the RMI refrain 

from actions that the United States determines are incompatible with U.S. defense 

obligations (the defense veto) and (2) federal services listed in the Compact. 

Summary 
Page 2 GAO-03-1007T Compact of Free Association 

$6.6 billion from the U.S. Congress.3 The amended Compacts would 

provide decreasing levels of annual assistance over a 20-year term (2004-

2023) in order to encourage budgetary self-reliance. Simultaneously, the 

Compacts would require building up a trust fund (with contributions that 

would increase annually) for each country to generate annual earnings 

that would replace the grants that end in 2023. Per capita grant assistance 

would fall over the 20-year period, particularly for the RMI. At an assumed 

trust fund rate of return of 6 percent, in 2024 the RMI trust fund would 

cover expiring grant assistance, while the FSM trust fund would be 

insufficient to replace grants. By the year 2040, however, RMI trust fund 

returns also would be unable to replace grant funding. 

The amended Compacts include many strengthened reporting and 

monitoring measures that could improve accountability if diligently 

implemented. The amended Compacts and related agreements have 

addressed most of the recommendations that we have made in past 

reports regarding assistance accountability. For example, assistance 

would be provided through grants targeted to priority areas, such as health 

and education, and with specific terms and conditions attached. Annual 

reporting and consultation requirements would be expanded, and funds 

could be withheld for noncompliance with Compact terms and conditions. 

However, the successful implementation of the many new accountability 

provisions will require a sustained commitment and appropriate resources 

from the United States, the FSM, and the RMI. 

The amended Compacts address other key issues. One key change to 

Compact defense provisions would occur–U.S. military access to 

Kwajalein Atoll in the RMI could be extended from 2016 to 2086. This 

extension would cost $3.4 billion of the total possible authorization of $6.6 

billion. Further, amended Compact provisions on immigration have been 

strengthened. FSM and RMI citizens entering the United States would need 

to carry a passport, and regulations could be promulgated that would 

impose time limits and other conditions on admission to the United States 

for these citizens. 

 3

Although the amended Compacts have been signed by the U.S., FSM, and RMI 

governments, they have not been approved by the legislature of any country. Therefore, in 

our testimony we describe the amended Compacts’ requirements and potential impact in a 

conditional manner in recognition that the Compacts have not yet been enacted. The total 

possible cost to renew expiring assistance in fiscal year 2004 U.S. dollars would be $3.8 

billion on the basis of the Congressional Budget Office’s forecasted inflation rate. 
Page 3 GAO-03-1007T Compact of Free Association 

The 1986 Compact of Free Association between the United States, the 

FSM, and the RMI provided a framework for the United States to work 

toward achieving its three main goals: (1) to secure self-government for 

the FSM and the RMI, (2) to assist the FSM and the RMI in their efforts to 

advance economic development and self-sufficiency, and (3) to ensure 

certain national security rights for all of the parties. The first goal has been 

met. The FSM and the RMI are independent nations and are members of 

international organizations such as the United Nations. 

The second goal of the Compact–advancing economic development and 

self-sufficiency for both countries–was to be accomplished primarily 

through U.S. direct financial payments (to be disbursed and monitored by 

the U.S. Department of the Interior) to the FSM and the RMI. For 1987 

through 2003, U.S. assistance to the FSM and the RMI to support economic 

development is estimated, on the basis of Interior data, to be about $2.1 

billion.4

 Economic self-sufficiency has not been achieved. Although total 

U.S. assistance (Compact direct funding as well as U.S. programs and 

services) as a percentage of total government revenue has fallen in both 

countries (particularly in the FSM), the two nations remain highly 

dependent on U.S. funds. U.S. direct assistance has maintained standards 

of living that are higher than could be achieved in the absence of U.S. 

support. Further, the U.S., FSM, and RMI governments provided little 

accountability over Compact expenditures. 

The third goal of the Compact–securing national security rights for all 

parties–has been achieved. The Compact obligates the United States to 

defend the FSM and the RMI against an attack or the threat of attack in the 

same way it would defend its own citizens. The Compact also provides the 

United States with the right of “strategic denial,” the ability to prevent 

access to the islands and their territorial waters by the military personnel 

of other countries or the use of the islands for military purposes. In 

 4

The cost of prior assistance in fiscal year 2004 U.S. dollars was $2.6 billion. This estimate 

does not include payments for Compact-authorized federal services or U.S. military use of 

Kwajalein Atoll land, nor does it include investment development funds provided under 

section 111 of Public Law 99-239. Additionally, the Compact served as the vehicle to reach 

a full settlement of all compensation claims related to U.S. nuclear tests conducted on 

Marshallese atolls between 1946 and 1958. In a Compact-related agreement, the U.S. 

government agreed to provide $150 million to create a trust fund. While the Compact and 

its related agreements represented the full settlement of all nuclear claims, it provided the 

RMI with the right to submit a petition of “changed circumstance” to the U.S. Congress 

requesting additional compensation. The RMI government submitted such a petition in 

September 2000, which the U.S. executive branch is still reviewing. 

Background 
Page 4 GAO-03-1007T Compact of Free Association 

addition, the Compact grants the United States a “defense veto.” Finally, 

through a Compact-related agreement, the United States secured 

continued access to military facilities on Kwajalein Atoll in the RMI 

through 2016.5 In a previous report, we identified Kwajalein Atoll as the 

key U.S. defense interest in the two countries.6

 Of these rights, only the 

defense veto is due to expire in 2003 if not renewed. 

Another aspect of the special relationship between the FSM and the RMI 

and the United States involves the unique immigration rights that the 

Compact grants. Through the original Compact, citizens of both nations 

are allowed to live and work in the United States as “nonimmigrants” and 

can stay for long periods of time, with few restrictions.7

 Further, the 

Compact exempted FSM and RMI citizens from meeting U.S. passport, 

visa, and labor certification requirements when entering the United States. 

In recognition of the potential adverse impacts that Hawaii and nearby 

U.S. commonwealths and territories could face as a result of an influx of 

FSM and RMI citizens, the Congress authorized Compact impact payments 

to address the financial impact of these nonimmigrants on Guam, Hawaii, 

and the Commonwealth of the Northern Mariana Islands (CNMI).8

 By 1998, 

more than 13,000 FSM and RMI citizens had made use of the Compact 

immigration provisions and were living in the three areas. The 

governments of the three locations have provided the U.S. government 

with annual Compact nonimmigrant impact estimates; for example, in 

2000 the total estimated impact for the three areas was $58.2 million. In 

 5

U.S. access to Kwajalein Atoll is established through the U.S.-RMI Military Use and 

Operating Rights Agreement (MUORA). Funding provided for U.S. military access to 

Kwajalein for the years 1987 to 2003 is estimated, on the basis of Interior data, to be $64 

million for development assistance and $144 million for the RMI government to 

compensate landowners for U.S. use of their lands. 

6

See U.S. General Accounting Office, Foreign Relations: Kwajalein Atoll Is the Key U.S. 

Defense Interest in Two Micronesian Nations, GAO-02-119 (Washington, D.C.: Jan. 22, 

2002). 

7

Typically, nonimmigrants include those individuals who are in the United States 

temporarily as visitors, students, or workers. 

8

Payments were also authorized for American Samoa, but impact compensation has not 

been sought. 
Page 5 GAO-03-1007T Compact of Free Association 

that year, Guam received $7.58 million in impact funding, while the other 

two areas received no funding.9

In the fall of 1999, the United States and the two Pacific Island nations 

began negotiating economic assistance and defense provisions of the 

Compact that were due to expire. Immigration issues were also addressed. 

According to the Department of State, the aims of the amended Compacts 

are to (1) continue economic assistance to advance self-reliance, while 

improving accountability and effectiveness; (2) continue the defense 

relationship, including a 50-year lease extension (beyond 2016) of U.S. 

military access to Kwajalein Atoll in the RMI; (3) strengthen immigration 

provisions; and (4) provide assistance to lessen the impact of Micronesian 

migration on Hawaii, Guam, and the CNMI. 

Under the amended Compacts with the FSM and the RMI, new 

congressional authorizations of approximately $3.5 billion in funding 

would be required over the next 20 years, with a total possible 

authorization through 2086 of $6.6 billion. Economic assistance would be 

provided to the two countries for 20 years–from 2004 through 2023–with 

all subsequent funding directed to the RMI for continued U.S. access to 

military facilities in that country. Under the U.S. proposals, annual grant 

amounts to each country would be reduced each year in order to 

encourage budgetary self-reliance and transition the countries from 

receiving annual U.S. grant funding to receiving annual trust fund earnings. 

This decrease in grant funding, combined with FSM and RMI population 

growth, would also result in falling per capita grant assistance over the 

funding period–particularly for the RMI. If the trust funds established in 

the amended Compacts earn a 6 percent rate of return, the FSM trust fund 

would be insufficient to replace expiring annual grants. The RMI trust fund 

would replace grants in fiscal year 2024 but would become insufficient for 

this purpose by fiscal year 2040. 

Under the amended Compacts with the FSM and the RMI, new 

congressional authorizations of approximately $6.6 billion could be 

required for U.S. payments from fiscal years 2004 to 2086, of which $3.5 

billion would be required for the first 20 years of the Compacts 

 9

See U.S. General Accounting Office, Foreign Relations: Migration From Micronesian 

Nations Has Had Significant Impact on Guam, Hawaii, and the Commonwealth of the 

Northern Mariana Islands, GAO-02-40 (Washington, D.C.: Oct. 5, 2001). 

Amended Compacts 

Would Alter 

Assistance Levels and 

Structure 

Amended Compacts Could 

Cost the U.S. Government 

$6.6 Billion 
Page 6 GAO-03-1007T Compact of Free Association 

(see table 1). The share of new authorizations to the FSM would be about 

$2.3 billion and would end after fiscal year 2023. The share of new 

authorizations to the RMI would be about $1.2 billion for the first 20 years, 

with about $300 million related to extending U.S. military access to 

Kwajalein Atoll through 2023. Further funding of $3.1 billion for the 

remainder of the period corresponds to extended grants to Kwajalein and 

payments related to U.S. military use of land at Kwajalein Atoll.10 The cost 

of this $6.6 billion new authorization, expressed in fiscal year 2004 U.S. 

dollars, would be $3.8 billion. 

This new authorized funding would be provided to each country in the 

form of (1) annual grant funds targeted to priority areas (such as health, 

education, and infrastructure); (2) contributions to a trust fund for each 

country such that trust fund earnings would become available to the FSM 

and the RMI in fiscal year 2024 to replace expiring annual grants; (3) 

payments the U.S. government makes to the RMI government that the RMI 

transfers to Kwajalein landowners to compensate them for the U.S. use of 

their lands for defense sites; and (4) an extension of federal services that 

have been provided under the original Compact but are due to expire in 

fiscal year 2003. 

 10U.S. access to Kwajalein Atoll in the RMI has already been secured through 2016 through 

a Compact-related agreement. The amended Compact with the RMI extends this funding to 

2066, with an additional 20-year optional lease extension at that point. 
Page 7 GAO-03-1007T Compact of Free Association 

Table 1: Estimated New U.S. Authorizations for the FSM and the RMI, Fiscal Years 

2004-2086 (U.S. dollars in millions) 

 FSM RMI Total

Fiscal years 2004-2023 

Grants for priority areas $1,612 $701a $2,313

Trust fund contributions 517 276 793

Payments for U.S. military use of Kwajalein Atoll 

landb

Not applicable 191 191

Compact-authorized federal servicesc 167 37 204

New U.S. authorization for 2004-2023 2,296 1,204 3,500

Fiscal years 2024-2086 

Grants to Kwajalein Not applicable 948a 948

Payments for U.S. military use of Kwajalein Atoll 

land 

Not applicable 2,133 2,133

New U.S. authorization for 2024-2086 Not applicable 3,081 3,081

Fiscal years 2004-2086, total new U.S. 

authorizations for the FSM and the RMI $2,296 $4,285 $6,581

Source: GAO estimate based on information in the amended Compacts. Under the amended Compacts, U.S. payments are adjusted 

for inflation at two-thirds of the percentage change in the U.S. gross domestic product implicit price deflator. 

Note: Numbers may not sum due to rounding. 

a

The 1986 U.S.-RMI Military Use and Operating Rights Agreement (MUORA) grants the United States 

access to certain portions of Kwajalein Atoll and provides $24.7 million of funding for development 

and impact on Kwajalein from 2004 to 2016. Approximately $112 million of the new proposed U.S. 

grant assistance of $701 million is for increasing this funding to Kwajalein from 2004 to 2016 and for 

continuation of the increased level of funding through 2066 and possibly to 2086 if the agreement is 

extended. 

b

As part of the 1986 MUORA, the RMI government has also allocated $162 million of U.S. funding 

from 2004 to 2016 under this agreement to landowners via a traditional distribution system to 

compensate them for the U.S. use of their lands for defense sites. The amended Compact increases 

these payments from 2004 to 2016 and continues the increased level of payments through 2066 and 

possibly to 2086 if the agreement is extended. 

c

Federal services authorized in the Compact include weather, aviation, and postal services. Services 

associated with the Federal Emergency Management Agency have been excluded. An estimate of 

assistance from the U.S. Agency for International Development’s Office of Disaster Assistance has 

not been included. 

Under the U.S. proposals, annual grant amounts to each country would be 

reduced each year in order to encourage budgetary self-reliance and 

transition the countries from receiving annual U.S. grant funding to 

receiving annual trust fund earnings. Thus, the amended Compacts 

increase annual U.S. contributions to the trust funds each year by the 

grant reduction amount. This decrease in grant funding, combined with 

FSM and RMI population growth, would also result in falling per capita 

grant assistance over the funding period–particularly for the RMI (see fig. 

1). Using published U.S. Census population growth rate projections for the 

two countries, the real value of grants per capita to the FSM would begin 

Amended Compacts Would 

Reduce U.S. Grant Support 

Annually 
Page 8 GAO-03-1007T Compact of Free Association 

at an estimated $687 in fiscal year 2004 and would further decrease over 

the course of the Compact to $476 in fiscal year 2023. The real value of 

grants per capita to the RMI would begin at an estimated $627 in fiscal 

year 2004 and would further decrease to an estimated $303 in fiscal year 

2023. The reduction in real per capita funding over the next 20 years is a 

continuation of the decreasing amount of available grant funds (in real 

terms) that the FSM and the RMI had during the 17 years of prior Compact 

assistance. 

Figure 1: Estimated FSM and RMI Per Capita Grant Assistance for Fiscal Years 1987-2023 (Fiscal Year 2004 U.S. Dollars) 

Note: This analysis includes only Compact funds available to governments. Therefore, the analysis 

excludes investment development funds provided under section 111 of Public Law 99-239, trust fund 

contributions, federal programs and services, audit assistance, and MUORA-related lease payments 

that the RMI government transfers to Kwajalein landowners. U.S. Census population historical and 

projected population growth rates are used in conjunction with the most recent country Census data. 

U.S. Census projections are subject to revision. 
Page 9 GAO-03-1007T Compact of Free Association 

The decline in annual grant assistance could impact FSM and RMI 

government budget and service provision, employment prospects, 

migration, and the overall gross domestic product (GDP) outlook, though 

the immediate effect is likely to differ between the two countries. For 

example, the FSM is likely to experience fiscal pressures in 2004, when the 

value of Compact grant assistance drops in real terms by 8 percent relative 

to the 2001 level (a reduction equal to 3 percent of GDP).11 For the RMI, 

however, the proposed level of Compact grant assistance in 2004 would 

actually be 8 percent higher in real terms than the 2001 level (an increase 

equal to 3 percent of GDP). According to the RMI, this increase would 

likely be allocated largely to the infrastructure investment budget and 

would provide a substantial stimulus to the economy in the first years of 

the new Compact. 

The amended Compacts were designed to build trust funds that, beginning 

in fiscal year 2024, yield annual earnings to replace grant assistance that 

ends in 2023. Both the FSM and the RMI are required to provide an initial 

contribution to their respective trust funds of $30 million. In designing the 

trust funds, the Department of State assumed that the trust fund would 

earn a 6 percent rate of return.12 The amended Compacts do not address 

whether trust fund earnings should be sufficient to cover expiring federal 

services, but they do create a structure that sets aside earnings above 6 

percent, should they occur, that could act as a buffer against years with 

low or negative trust fund returns. Importantly, whether the estimated 

value of the proposed trust funds would be sufficient to replace grants or 

create a buffer account would depend on the rate of return that is 

realized.13

• If the trust funds earn a 6 percent rate of return, then the FSM trust fund 

would yield a return of $57 million in fiscal year 2023, an amount 

insufficient to replace expiring grants by an estimated value of $27 million. 

 11The level of grant assistance in 2001 was converted into fiscal year 2004 dollars for 

comparison purposes. 

12The State Department chose a 6 percent return in order to reflect a conservative 

investment strategy. This rate of return can be compared with the current average 

forecasted return for long-term U.S. government bonds of 5.8 percent by the Congressional 

Budget Office. 

13This analysis does not take into account volatile or negative returns. The sufficiency of 

either the FSM or the RMI trust fund to replace grants has not been tested under conditions 

of market volatility. 

Trust Funds May Be 

Insufficient to Replace 

Expiring Grants 
Page 10 GAO-03-1007T Compact of Free Association 

The RMI trust fund would yield a return of $33 million in fiscal year 2023, 

an estimated $5 million above the amount required to replace grants in 

fiscal year 2024. Nevertheless, the RMI trust fund would become 

insufficient for replacing grant funding by fiscal year 2040. 

• If the trust funds are comprised of both stocks (60 percent of the 

portfolio) and long-term government bonds (40 percent of the portfolio) 

such that the forecasted average return is around 7.9 percent, then both 

trust funds would yield returns sufficient to replace expiring grants and to 

create a buffer account. However, while the RMI trust fund should 

continue to grow in perpetuity, the FSM trust fund would eventually 

deplete the buffer account and fail to replace grant funding by fiscal year 

2048. 

I will now discuss provisions in the amended Compacts designed to 

provide improved accountability over, and effectiveness of, U.S. 

assistance. This is an area where we have offered several 

recommendations in past years, as we have found accountability over past 

assistance to be lacking.14 In sum, most of our recommendations regarding 

future Compact assistance have been addressed with the introduction of 

strengthened accountability measures in the signed amended Compacts 

and related agreements. I must emphasize, however, that the extent to 

which these provisions will ultimately provide increased accountability 

over, and effectiveness of, future U.S. assistance will depend upon how 

diligently the provisions are implemented and monitored by all 

governments. 

The following summary describes key accountability measures included in 

the amended Compacts and related agreements: 

• The amended Compacts would require that grants be targeted to priority 

areas such as health, education, the environment, and public 

infrastructure. In both countries, 5 percent of the amount dedicated to 

infrastructure, combined with a matching amount from the island 

governments, would be placed in an infrastructure maintenance fund. 

 14See U.S. General Accounting Office, Foreign Assistance: U.S. Funds to Two Micronesian 

Nations Had Little Impact on Economic Development, GAO/NSIAD-00-216 (Washington, 

D.C.: Sept. 22, 2000) for a review of the first 12 years of direct Compact assistance. 

Amended Compacts 

Have Strengthened 

Accountability Over 

U.S. Assistance 
Page 11 GAO-03-1007T Compact of Free Association 

• Compact-related agreements with both countries (the so-called “fiscal 

procedures agreements”) would establish a joint economic management 

committee for the FSM and the RMI that would meet at least once 

annually. The duties of the committees would include (1) reviewing 

planning documents and evaluating island government progress to foster 

economic advancement and budgetary self-reliance; (2) consulting with 

program and service providers and other bilateral and multilateral 

partners to coordinate or monitor the use of development assistance; (3) 

reviewing audits; (4) reviewing performance outcomes in relation to the 

previous year’s grant funding level, terms, and conditions; and (5) 

reviewing and approving grant allocations (which would be binding) and 

performance objectives for the upcoming year. Further, the fiscal 

procedures agreements would give the United States control over the 

annual review process: The United States would appoint three government 

members to each committee, including the chairman, while the FSM or the 

RMI would appoint two government members. 

• Grant conditions normally applicable to U.S. state and local governments 

would apply to each grant. General terms and conditions for the grants 

would include conformance to plans, strategies, budgets, project 

specifications, architectural and engineering specifications, and 

performance standards. Other special conditions or restrictions could be 

attached to grants as necessary. 

• The United States could withhold payments if either country fails to 

comply with grant terms and conditions. In addition, funds could be 

withheld if the FSM or RMI governments do not cooperate in U.S. 

investigations regarding whether Compact funds have been used for 

purposes other than those set forth in the amended Compacts. 

• The fiscal procedures agreements would require numerous reporting 

requirements for the two countries. For example, each country must 

prepare strategic planning documents that are updated regularly, annual 

budgets that propose sector expenditures and performance measures, 

annual reports to the U.S. President regarding the use of assistance, 

quarterly and annual financial reports, and quarterly grant performance 

reports. 

• The amended Compacts’ trust fund management agreements would grant 

the U.S. government control over trust fund management: The United 

States would appoint three members, including the chairman, to a 

committee to administer the trust funds, while the FSM or the RMI would 

appoint two members. After the initial 20 years, the trust fund committee 

would remain the same, unless otherwise agreed by the original parties. 
Page 12 GAO-03-1007T Compact of Free Association 

The fiscal procedures agreements would require the joint economic 

management committees to consult with program providers in order to 

coordinate future U.S. assistance. However, we have seen no evidence 

demonstrating that an overall assessment of the appropriateness, 

effectiveness, and oversight of U.S. programs has been conducted, as we 

recommended.15

The successful implementation of the many new accountability provisions 

will require a sustained commitment by the three governments to fulfill 

their new roles and responsibilities. Appropriate resources from the 

United States, the FSM, and the RMI represent one form of this 

commitment. While the amended Compacts do not address staffing issues, 

officials from Interior’s Office of Insular Affairs have informed us that 

their office intends to post six staff in a new Honolulu office. Further, an 

Interior official noted that his office has brought one new staff on board in 

Washington, D.C., and intends to post one person to work in the RMI (one 

staff is already resident in the FSM). We have not conducted an 

assessment of Interior’s staffing plan and rationale and cannot comment 

on the adequacy of the plan or whether it represents sufficient resources 

in the right location. 

The most significant defense-related change in the amended Compacts is 

the extension of U.S. military access to Kwajalein Atoll in the RMI.16 While 

the U.S. government had already secured access to Kwajalein until 2016 

through the 1986 MUORA, the newly revised MUORA would grant the 

United States access until 2066, with an option to extend for an additional 

20 years to 2086. According to a Department of Defense (DOD) official, 

 15This recommendation was included in U.S. General Accounting Office, Foreign 

Assistance: Effectiveness and Accountability Problems Common in U.S. Programs to 

Assist Two Micronesian Nations, GAO-02-70 (Washington, D.C.: Jan. 22, 2002). 

16A few expiring provisions would be extended indefinitely in the amended Compacts. The 

“defense veto” has been extended. In addition, the ability of FSM and RMI citizens to 

volunteer to serve in the U.S. military would be extended. 

Amended Compacts 

Address Other Key 

Areas 

U.S. Military Access to 

Kwajalein Atoll Could Be 

Extended Until 2086 
Page 13 GAO-03-1007T Compact of Free Association 

recent DOD assessments have envisioned that access to Kwajalein would 

be needed well beyond 2016. He stated that DOD has not undertaken any 

further review of the topic, and none is currently planned. This official 

also stated that, given the high priority accorded to missile defense 

programs and to enhancing space operations and capabilities by the 

current administration, and the inability to project the likely improvement 

in key technologies beyond 2023, the need to extend the MUORA beyond 

2016 is persuasive. He also emphasized that the U.S. government has 

flexibility in that it can end its use of Kwajalein Atoll any time after 2023 

by giving advance notice of 7 years and making a termination payment. 

We have estimated that the total cost of this extension would be $3.4 

billion (to cover years 2017 through 2086).17 The majority of this funding 

($2.3 billion) would be provided by the RMI government to Kwajalein Atoll 

landowners, while the remainder ($1.1 billion) would be used for 

development and impact on Kwajalein Atoll. According to a State 

Department official, there are approximately 80 landowners. Four 

landowners receive one-third of the annual payment, which is based on 

acreage owned. This landowner funding (along with all other Kwajaleinrelated funds) through 2023 would not be provided by DOD but would 

instead continue as an Interior appropriation. Departmental responsibility 

for authorization and appropriation for Kwajalein-related funding beyond 

2023 has not been determined according to the Department of State. Of 

note, the Kwajalein Atoll landowners have not yet agreed to sign an 

amended land-use agreement with the RMI government to extend U.S. 

access to Kwajalein beyond 2016 at the funding levels established in the 

amended Compact. 

While the original Compact’s immigration provisions are not expiring, the 

Department of State targeted them as requiring changes. The amended 

Compacts would strengthen the immigration provisions of the Compact by 

adding new restrictions and expressly applying the provisions of the 

Immigration and Nationality Act of 1952, as amended (P.L. 82-414) to 

Compact nonimmigrants.18 There are several new immigration provisions 

in the amended Compacts that differ from those contained in the original 

 17Our figure of $3.4 billion is adjusted for inflation. 

18As noted in the background section, FSM and RMI citizens who enter the United States 

are legally classified as “nonimmigrants” – that is, individuals who are in the United States 

temporarily as visitors, students, or workers. 

Amended Compacts Would 

Strengthen Immigration 

Provisions 
Page 14 GAO-03-1007T Compact of Free Association 

Compact. For example, Compact nonimmigrants would now be required 

to carry a valid passport in order to be admitted into the United States. 

Further, children coming to the United States for the purpose of adoption 

would not be admissible under the amended Compacts. Instead, these 

children would have to apply for admission to the United States under the 

general immigration requirements for adopted children. In addition, the 

Attorney General would have the authority to issue regulations that 

specify the time and conditions of a Compact nonimmigrant’s admission 

into the United States (under the original Compact, regulations could be 

promulgated to establish limitations on Compact nonimmigrants in U.S. 

territories or possessions). 

In addition, the implementing legislation for the amended Compacts would 

provide $15 million annually for U.S. locations that experience costs 

associated with Compact nonimmigrants. This amount would not be 

adjusted for inflation, would be in effect for fiscal years 2004 through 2023, 

and would total $300 million. Allocation of these funds between locations 

such as Hawaii, Guam, and the CNMI would be based on the number of 

qualified nonimmigrants in each location. 

Mr. Chairman and Members of the Committee, this completes my prepared 

statement. I would be happy to respond to any questions you or other 

Members of the Committee may have at this time. 

For future contacts regarding this testimony, please call Susan S. Westin 

or Emil Friberg, Jr., at (202) 512-4128. Individuals making key 

contributions to this testimony included Leslie Holen, Kendall Schaefer, 

Mary Moutsos, and Rona Mendelsohn. 

Contacts and 

Acknowledgments 

(320212) 
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